Generation of industrial strength gradually re "fragile" business model further challenges

Due to market demand, supply crunch and price stability, iSuppli company forecast 2006 net generation plant will resume growth, but the growth rate declined slightly compared to 2005. 2006, the global pure plant revenue is expected to grow by $16 billion 400 million in 2005 on the basis of an increase of $19 billion 700 million, up to $19.6%, but the growth rate is expected to decline by more than 0.8% in 2005.

From 2005 to 2006, the main volatility in the growth of pure factory revenue is the uncertainty of the semiconductor industry, which has become a major topic in the field in the year of 2006.

The main focus of the debate is: how long and how long will the semiconductor industry swing from supply to demand? One side of the debate is that the semiconductor industry has matured through improved management, cyclical prosperity and volatility will be minimized. The opposition party said in a statement, although the entire semiconductor industry in advance, the highly competitive nature of the market - business share - will continue to determine the success or failure of enterprises are forced to unrealistic expansion, resulting in excess production capacity and severe price erosion.

For pure foundries, in 2005 it is obvious that the vulnerability of their business model. Although 2006 will be a year of recovery, but in the foundry industry, the basic contradiction driving the market volatility is increasingly prominent.

The third party manufacturing model established by the company to explore the provision of services in order to aggregate demand from different customers. With the rise of the Fab semiconductor company, the model has developed rapidly. Foundries are critical to the growth of innovative and aggressive Fab semiconductor companies that require advanced manufacturers to support the competition with established integrated device manufacturers (IDM). At the same time, the foundry semiconductor company has encouraged the expansion of capacity. OEM manufacturers in 2001 has made great progress, because the entire semiconductor industry has experienced a historic balanced reduction. IDM recognizes that it can improve asset utilization and cash flow management levels by outsourcing the demand for advanced and mature products compared with all of the internal manufacturing. Currently, about 1/3 OEM demand originated in IDM. At present, pure foundry suppliers serve two types of employers: Fab semiconductor and IDM. Because of the separation in demand, foundries have experienced accelerated growth and rapid decline compared with the entire semiconductor industry. Figure 1 provides a comparison of the annual growth rate of the plant and the semiconductor industry over the past 10 years.

Figure 1: comparison of annual revenue growth rates between pure and the semiconductor industry. (the percentage change in revenue)

In the first half of 2005, due to the restructuring of the entire semiconductor industry, its moderate inventory portfolio, IDM and the semiconductor company's demand for foundries has declined. The industry in the second half of 2005 to return to 3.6% of the medium rate of growth. However, the plant could not overcome the loss of orders in the first half of the year, and suffered a contraction in 2005. At this point, the industry needs to be cautiously optimistic about the key stage of the semiconductor industry in 2006. However, the excess inventory in the supply chain is still the majority of enterprises have become idle. Figure 2 is a forecast of iSuppli's revenue for the world's pure foundries.

Figure 2: Net Revenue Forecast of global pure plant (unit: US $million)

Examining the factors that drive iSuppli's forecasts for 2006, it is clear that semiconductor inventories in the supply chain are now at their lowest level in at least 5 years. With the continued growth in demand, foundries have accelerated production, not only to meet immediate orders, but also for the second half of this year to build a small seasonal buffer inventory.

The challenge for manufacturers in 2006 is how to rapidly expand production capacity. In 2005, capital spending was 5.8% lower than in 2004. With strict management of cash flow, increase production capacity will enable enterprises to face the challenge in the first half of 2006. Despite this difficulty, 2006 still marks the beginning of the pure foundry business to achieve steady growth in the long term, before the year is expected to expand by two digits, is expected in 2010 is still a high value of the single digit growth in 2009.